In a grave indicator of dwindling British consumer confidence, Pendragon, the company behind the Stratstone upmarket dealerships and Evans Halshaw forecourts selling Fords and Vauxhall, revealed today that profits slumped by half last year to £34.8m from £69.4m in 2006.

But what looks like a continuing tough market this year for Pendragon - latest monthly new car sales show a 5% dive this year - should be a boon for consumers taking advantage of value-for-money offers resulting from deflationary pressures in the industry.

'It looks like remaining uncertain, a difficult market place for us,' admitted Pendragon's chief executive Trevor Finn. 'The market is awash with new cars and is as competitive as ever with the signs that the manufacturers will continue to offer the incentives to customers to keep the volumes going.

'The lower new car transaction prices have had the knock-on effect of driving down margins in the nearly new and used-car markets.'

Pendragon's figures show that the group's profit margins, wafer thin in the motor dealing game at the best of times, are looking positively size zero. Net of financing costs on its £333m debt pile, Pendragon's underlying operating profit margin was just 1.85% on sales in the year worth nearly £5.1bn. That compares with 2.7% in 2006.

Finn said the group's performance, which has seen its stock slump 75% after three profit warnings last year, had been hit by last year's rising interest rates, adding nearly £10m to its borrowing costs and hitting consumer confidence.

Worst hit for Pendragon was new car sales in its Stratstone luxury cars division. While Finn said the City bonus boys were still snapping up Aston Martins and Porsches, sales of Jaguars and Cadillacs slumped.

Finn said Jaguar buyers are sitting on their hands as they wait for the new XF to replace the S-type, while the introduction of the Caddy to the UK has not been a success. 'We have rationalised our Cadillac network taking the number of dealerships down to six from 11. It is an expensive luxury car in a market place that is cautious at the moment,' he said.

But while the car market is likely to remain tough this year, Finn claims Pendragon is in a much better position to fight back after a rationalisation of the business which has followed its £500m acquisition of Reg Vardy two years ago.

Pendragon is closing 26 loss-making forecourts. More strategically, Finn has decided to get into older used cars, where the market place is larger than for new cars and where the profit margins on such cars going typically for between £5000 and £7000 is better than in other segments.